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Pension reform costs raise concerns

22 March 2010 / by Rebecca Sargent

The charging structure for the Government's proposed pension reforms has raised concerns among industry experts.

NEST (National Employment Savings Trust) - previously known as Personal Accounts, which hopes to make pension saving accessible to all, has revealed a charging structure of 0.3 per cent annual management charge over the longer term, with an initial charge on contributions of two per cent.

The charges are in place to meet the costs of establishing the scheme, which claims to address 'market failure for low and moderate earners'. Commenting, Minister of State for Pensions and the Ageing Society, Angela Eagle said:

"This is a fair and sensible funding package which delivers the Pensions Commission's vision of a low cost scheme in an affordable way."

However, the costs have raised concerns among some, as National Association of Pension Funds (NAPF) director Nigel Peaple said: "We are concerned that a two per cent charge on contributions mean charges will be relatively high in the first few years – higher than would be normal in an existing large occupational scheme.

"High upfront charges might discourage savings in the scheme or may make them less likely to save above the eight per cent minimum."